Skip to content

CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Himalaya Ltd acquired 75% of Sutlej Ltd on 1 April 2025 for Rs 9,00,000. On that date Sutlej Ltd's equity share capital was Rs 8,00,000 and its reserves were Rs 2,00,000. Using AS 21, what amount of goodwill or capital reserve arises on consolidation?

Goodwill of Rs 1,50,000 arises. The parent's share of the subsidiary's net worth at acquisition is 75% of Rs 10,00,000, i.e. Rs 7,50,000. The cost of investment of Rs 9,00,000 exceeds this, and the excess is goodwill on consolidation, not capital reserve.

  1. ACapital reserve Rs 1,50,000
  2. BGoodwill Rs 1,50,000Correct
  3. CGoodwill Rs 1,00,000
  4. DGoodwill Rs 9,00,000

Explanation

Net worth at acquisition = 8,00,000 + 2,00,000 = Rs 10,00,000. Parent's share = 75% = Rs 7,50,000. Cost Rs 9,00,000 - 7,50,000 = Rs 1,50,000 excess, which is goodwill. Capital reserve would arise only if cost were lower than the share.

Did you get it right without looking?

One question tells you little. A timed set on AS 21 Consolidated Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise AS 21 Consolidated Financial StatementsFree diagnostic mock

More AS 21 Consolidated Financial Statements questions